Dominion, SCANA agree to $14.6B all-stock merger

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Dive Brief:

Dominion Energy and SCANA Corp. have agreed to an all-stock merger that company officials say will lower customer rates and help unwind financial obligations related to the abandoned V.C. Summer nuclear project.

SCANA shareholders would receive 0.669 shares of Dominion stock for every share of SCANA — or $55.35/share, a 28% premium on Tuesday's closing price. That amounts to a deal value of $14.6 billion, including debt, should the agreement be approved by shareholders and state and federal regulators.

Dominion says it would write off $1.7 billion in costs related to the Summer plant, allowing it to eliminate customer costs for the project over 20 years, instead of the 50-60 years proposed by SCANA. The deal would give Dominion 6.5 million regulated electric and gas customers in eight states,
but is contingent on keeping a state law that allows SCANA to recoup at least some costs for the Summer plant.

Dive Insight:

SCANA, parent company of South Carolina Electric & Gas (SCE&G), has been looking for a buyer since late summer, after it and state-owned utility Santee Cooper announced they would abandon construction of the V.C. Summer nuclear plant, having already spent $9 billion in ratepayer cash.

Dominion says acquiring SCANA could help cushion the blow of the Summer debacle. In addition to a $1.7 billion writeoff of nuclear costs, the company proposes a $1.3 billion payment to SCE&G customers, amounting to about $1,000 for the average residential ratepayer. That would come on top of an additional 5% residential rate reduction, Dominion said in a release, resulting from refunds of previously collected funds and the impact of lower federal taxes.

In addition, Dominion said it would complete the purchase of the $180 million gas-fired Columbia Energy Center "at no cost to customers to fulfill generation needs."

Without debt, the deal is valued at about $7.7 billion. SCANA shares were up nearly 22% in pre-market trading.

If approved, SCANA would operate as a wholly-owned subsidiary of Dominion, saddling the Virginia-based holding company with the baggage of the Summer plant, but also significantly expanding its rate base.

Dominion currently serves about 2.5 million electric customers in Virginia and North Carolina and 2.3 million gas customers in Idaho, Ohio, Utah, West Virginia and Wyoming. Adding SCANA ratepayers would push the combined customer number to 6.5 million, as well as giving it a total of 31.4 GW of generation capacity and 93,600 miles of electric lines.

The deal, Dominion said, would increase its target for compounded annual earnings-per-share growth to 8% through 2020, up from a 6% to 8% expected growth rate. Even so, Dominion shares were trading more than 5% lower before the markets opened Wednesday.

Dominion expects the deal to close this year following approval from company shareholders, the Federal Energy Regulatory Commission, the Nuclear Regulatory Commission and utility regulators in South Carolina, North Carolina and Georgia.

It remains to be seen, however, how South Carolina lawmakers will respond. The deal depends on preserving a state law that allows SCANA to recoup costs from customers for the plant. But in November, a state House committee approved a bill that would halt all customer payments to SCANA for the Summer plant and force it to refund $1.7 billion in funds already collected from ratepayers. The full House is expected to take the bill up this month, along with proposed changes to utility regulation in the state.